Termination Of The Equity Transfer Contract By Installment Payment In A Limited Liability Company

The Guiding Case No.67 which was issued by the Supreme People's Court has triggered a discussion in the academic circles on whether the equity transfer contract by installment payment in a limited liability company can be terminated in accordance with the Paragraph 1 of Article 167 of the Contract Law of the People's Republic of China(hereinafter referred to as the Contract Law).From the perspective of judicial practice,although the judgment point of the Guiding Case No.67 does have a great impact on the judicial trial,it also raises questions about the guidance cases.Due to the Guiding Case No.67's deviation from the facts of the case and the lack of systematic consideration of the existing law,the phenomenon of confusion of law application appears in judicial practice.The equity transfer contract by installment payment in a limited liability company as onerous contract,is not a kind of contracts which are required by the Contract Law.And because of some same characteristics between the equity transfer contract by installment payment in a limited liability company and the sales contract by installment payment,such as "delivering the subject matter firstly" and "payment by installment",the equity transfer contract by installment payment in a limited liability company's constitutive requirements can be clearly confirmed according to the main characteristics of the sales contract by installment payment.Secondly,although the equity transfer contract by installment payment in a limited liability company has its particularity,there is still room for the termination rule of the Paragraph 1 of Article 167 of the Contract Law to be applied by analogy.In addition,the equity transfer contract by installment payment in a limited liability company has a high "similarity" with the sales contract by installment payment in terms of the trading principals,transaction subject,payment obligation and credit risk.Therefore,the termination of the equity transfer contract by installment payment in a limited liability company has the possibility of applying the termination rule of the Paragraph 1 of Article 167 of the Contract Law by analogy.The Paragraph 1 of Article 167 of the Contract Law as a kind of mandatory provisions is stipulated in the "Sales Contracts" of chapter 9 of the Contract Law.The legislative purpose of this provision is to protect the buyer's interests while it protects the interests of the seller in judicial practice.So there is a deviation which is a legal loophole.This legal loophole is probably intended by the legislator due to the relatively weak legislative foundation of the Contract Law in China and the generally poor social credit degree at the beginning of the legislation.Because our country's civil legislation insists on the tradition of "civil and commercial unity",the Commercial Contracts may also apply the Article 167 of the Contract Law.Under the current law,the termination of the equity transfer contract by installment payment in a limited liability company shall apply the termination rule of the Paragraph 1 of Article 167 of the Contract Law by analogy in accordance with the Article 124 of the Contract Law and the Article 174 of the Contract Law and the Article 45 of the Interpretation of the Supreme People's Court on Issues concerning the Application of Law in the Trial of Sales Contract Dispute Cases.Therefore,the termination of the equity transfer contract by installment payment in a limited liability company which has a high degree of similarity to the sales contract by installment payment shall apply the termination rule of the Paragraph 1 of Article 167 of the Contract Law by analogy.Because of its particularity,the reasons for termination and the path to termination of the equity transfer contract by installment payment in a limited liability company which shall apply the termination rule of the Paragraph 1 of Article 167 of the Contract Law by analogy are different from other contracts.There is only one reason for the termination when it is limited to the constitutive requirement of the Paragraph 1 of Article 167 of the Contract Law.The constitutive requirement is that under the equity transfer contract by installment payment in a limited liability company,the transferee fails to pay the due price up to one fifth of the total price.During the performance of the contract,the assignee of the equity will be unable to perform,refuse to perform,delay in performance and other performance obstacles will lead to the above situation.And the causes of the performance obstacles are relatively diverse.The right to rescind a contract under the Paragraph 1 of Article 167 of the Contract Law is a kind of special right of statutory rescission and because of it,the Article 93 of the Contract Law will no longer be applied in this case.In the Civil Code of the People's Republic of China(draft),the requirement of "notice" was added in the stipulation of " the sales contract by installment payment ".Based on the above change and the interpretation of "the purpose of the contract cannot be fulfilled",the termination of the equity transfer contract by installment payment in a limited liability company shall apply the termination rule of the Paragraph 1 of Article 167 of the Contract Law by analogy preferentially rather than applying the general termination rule of the Article 94 of the Contract Law.Although the sales contract by installment payment and the equity transfer contract by installment payment in a limited liability company have the commonness and high similarity in many aspects,they are different "things" after all,which is also the premise of analogy.Because of this,the termination of the equity transfer contract by installment payment in a limited liability company is also special.Due to the particularity of the equity,the statement that the royalty of the subject matter shall be paid in the termination of the sales contract by installment payment shall be reflected in the termination of the equity transfer contract by installment payment in a limited liability company as the transferee of the equity shall return the interests obtained from the holding of the equity.As for the compensation for the damage of the subject matter in the termination of the sales contract by installment payment,in the termination of the equity transfer contract by installment payment in a limited liability company,it shall be reflected as the relevant consideration for the loss of the equity value and the company's operating loss caused by the transferee of the equity.There are three kinds of modes which are about confirming the timing of equity transfer.However,in combination with the judicial practice in China,the timing of equity transfer can be confirmed after the consent of other shareholders and the knowledge of the company.Therefore,after the termination of the equity transfer contract by installment payment in a limited liability company,the equity transferor cannot of course obtain the original equity to become the shareholder of the company again,and it still needs the consent of other shareholders.